Published
in the midst of the Panic of 1873, this cartoon portrays President
Ulysses S. Grant as a watchdog guarding the U.S. Treasury from Wall
Street speculators who are seeking a bailout from the federal
government. Lawyer Reverdy Johnson (left) presents a brief for
financier Cornelius Vanderbilt (right), as Uncle Sam warns the two men
not to provoke the Grant bulldog.

The Panic of 1873 and the
subsequent depression had several underlying causes, of which economic
historians debate the relative importance. Post-war inflation,
rampant speculative investments (overwhelmingly in railroads), a large
trade deficit, ripples from economic dislocation in Europe resulting
from the Franco-Prussian War (1870-1871), significant property losses in
Chicago (1871) and Boston (1872) fires, and other factors put a massive
strain on bank reserves, which plummeted in New York City during
September and October 1873 from $50 million to $17 million.

Unable to meet payment demands,
many banks and other financial institutions suspended their
operations. The first sign of trouble occurred on September 8 when
the New York Warehouse and Securities Company closed its doors, and a
week later, financier Daniel Drew's firm of Kenyon, Cox, and Company
followed suit. It was the failure of Jay Cooke and Company on
September 18 that sent Wall Street into a panic. Jay Cooke, who
had been instrumental in marketing government bonds
during
the Civil War, had a reputation for making substantial profits honestly
and cautiously. However, Cooke had also caught the railroad fever,
and the failure of his Northern Pacific Railroad caused his financial
house to collapse. Two other prominent firms closed the same day,
and 37 more on September 19.

On a trip to Philadelphia to
enroll his son, Jesse, in a private academy, President Grant was a guest
at Cooke's mansion on the night of September 17. When Cooke
learned of his personal financial disaster the next day, he did not
inform the president, who returned to Washington none the wiser.
Once back in the nation's capital, Grant learned of the events, and
politicians began pressuring him to increase the money supply with
government-printed "greenbacks" (paper currency backed by
government authority, not gold or silver). On September 20, the
New York Stock Exchange announced it was suspending transactions for ten
days. Grant quickly set off for Manhattan, where he met the next
day with a group of business and financial leaders.

The businessmen and brokers
enthusiastically favored inflating the currency with more greenbacks,
while the bankers were as adamantly opposed to it. As a
"hard-money" man who advocated a return to the gold standard,
Grant decided against printing more greenbacks. Instead, the
Treasury Department put more greenbacks into circulation by redeeming
several outstanding bonds, and thereby avoided undermining the value of
the dollar with inflated currency. Banks also announced that they
would use short-term certificates as cash until their reserves were replenished.
The reaction of the national press was, like this cartoon, largely
favorable to the president's tight money policy. The New York
Stock Exchange reopened on September 30, and while stock prices
continued to be low, the panic was over.

At first, many thought the
problem affected only Wall Street, but the panic actually marked the
beginning of a long economic depression for the entire nation.
Over the next five years, tens of thousands of businesses failed,
hundreds of thousands of people were left unemployed, private relief
programs had difficulty meeting the needs of the destitute, and numerous
labor strikes erupted, most notably a violent railroad strike during
the summer of 1877.

In his annual message to
Congress in December 1873, President Grant proposed a national monetary
clearinghouse to monitor currency movements throughout the country
(similar to the Federal Reserve Board established in 1913).
Congressmen, though, looking to expand the money supply with more
greenbacks, introduced 60 "inflation" bills within weeks after the
president's message. On April 14, 1874, Congress passed an
inflation bill that would increase the nation's money supply by $100
million. President Grant had previously endured poverty and been
adversely affected by the Panic of 1857, so he genuinely sympathized
with the motivations behind the bill and those it was trying to
help.

However, on April 21, Grant
vetoed the bill, arguing that any short-term benefit would be far
outweighed by the long-term damage done to the national economy by the
inflation it would generate. The financial community and major
newspapers, such as Harper's Weekly and The New York Times,
applauded the courageous decision. Grant's veto was also important
because it swung the pendulum back toward the "hard-money"
politicians, who in 1875 passed the Specie Resumption Act. The law
scheduled the United States to return to the gold standard (with silver
as a subsidiary currency) on January 1, 1879. The economic
depression continued through 1878 with more bankruptcies and high
unemployment, but the overall economy, in fact, grew during those
years. In 1879, with the country back on the gold standard, the
United States experienced several years of unprecedented economic
expansion.